Microfinance sector shrinks by 2.4% in Q1: CRIF

The sector, however, has shown a 17% YoY growth with a live customer base of 6.1 crore and nearly 10.7 crore active loans, noted the twelfth edition of CRIF MicroLend.

After shrinking by 2.4% since March 2020, the microfinance sector as of June is worth Rs 226.6k crore.The sector, however, has shown a 17% YoY growth with a live customer base of 6.1 crore and nearly 10.7 crore active loans, noted the twelfth edition of CRIF MicroLend.Banks remain the largest share of MFI portfolio in at 41.6%, followed by NBFC MFIs at 30.8%.

Growth and market share

Pandemic induced lockdowns left its mark on disbursements in Q1FY21.Around Rs 6046 crore were disbursed in Q1FY21 as compared to Rs 52,556 crore for the same period last year; only 21 lakh loans were disbursed as against 189 lakh in previous quarter and 157 lakh in same quarter previous year.“The regional distribution of disbursements remained the same as the previous quarter, with the eastern region dominating with 44%, followed by the southern region (15.6%). Disbursements (volume) in Q4FY20 were largely dominated by higher ticket sizes of 40k+ with a share of 70%. In Q1 FY 2020-21, disbursements of small ticket sizes of <20k have been the focus with a share of nearly 60%. Maximum loans of ticket size 15K-20K were disbursed in both rural and urban geographies in Q1 FY 2020-21, as against ticket size 25K-30K in Q4 FY 2019-20.” Disbursements (value) by banks dropped 88%, while those by NBFC MFIs by 97% over the previous quarter.Meanwhile, banks saw a decline in disbursements by 27%, NBFC MFIs saw a drop of 21% indicating the severe impact of COVID-19 lockdown on disbursements in the MFI sector.

Risk profile

The portfolio-at-risk (PAR) in the 1-30 due-past-date (DPD) was at 0.9% in June quarter. PAR 31-180% reduced by 40 bps over the previous quarter, saw an increase of 50 bps over June 2019. “Early delinquency for banks has reduced by 30 bps over Jun 2019. For NBFC MFIs PAR 1-30% has increased by 20 bps over Jun 2019. PAR 31-180% for banks has increased by 60 bps over Jun 2019 and for NBFC MFIs by 70 bps during the same time period. PAR 180+ for banks has increased by 1% over Jun 2019, whereas only 10 bps for NBFC MFIs as of Jun 2020,” it noted.The write-offs as of Jun 2020 stood at 2.9% of the portfolio, having increased by 1.3% over Mar 2020. This increase is largely attributed to bulk recognition of write-off on mostly pre-demonetisation bad book (180+ DPD) in Jun 2020. Due to a lag in the economic activity, collections came to a standstill during the lockdown, and the extent of the impact is visible in the monthly collection roll rates or the portfolio flow rates between consecutive months.

The proportion of delinquent portfolio (1-180 DPD) in the MFI sector that remained at the same delinquency level as the month prior, spiked up to nearly twice in March 2020 and April 2020. Collections in the MFI sector are still largely cash dependent and came to a standstill in the lockdown, as visible in the monthly collection roll rates for the portfolio. By May 2020, as economic activity resumed in several non-containment areas across the country, physical collection in MFIs is also reported to have picked up momentum. “While the sector has witnessed transformation over the last few years in terms of digital adoption in practices as well as processes such as contact less sourcing and disbursal, it remains to be seen as to how policy, regulation and the industry will work collectively to enable and promote digital adoption in the collections cycle of MFI,” the report added.

Source: Publication: BFSI , 8th Oct,2020